The idea was one of a number of options floated in a paper released by the ASX yesterday. The bourse, which is currently trying to pull off a merger with Singapore's stock exchange, is particularly keen to encourage small mining companies to list as Australia's mining boom continues.
"Australia's markets performed extremely strongly throughout the Global Financial Crisis (GFC), as evidenced by record levels of secondary capital raisings. The IPO market has experienced a post-GFC recovery led by WA-based resource companies," the ASX report said yesterday.
"ASX believes there is scope for building on the successes of the current market structure for securities outside the S&P/ASX200, and is seeking public comment on how it can improve the market for these securities. "
The ASX currently operates a one-size-fits-all market, with companies of all shapes and sizes subject to the same listing rules.
For example, all companies that list on the ASX must have more than 500 individual shareholders who have invested more than $2,000 each. This can be difficult for small companies that are tightly-held by a relatively small number of shareholders.
But the ASX says it could look at changes to these requirements (known as shareholder spread requirements) in order to encourage smaller firms to float.
Other options the ASX says it could examine to assist small-cap companies include the extension of trading hours for small companies in order to attract more interest from overseas investors.
The ASX will also examine the idea of setting up a second board specifically for SMEs, although its options paper notes that there does not appear to be much appetite for this from market participants.
Reuben Buchanan, executive director of Wholesale Investor, is cautious about the prospect of the ASX changing or relaxing any listing rules.
While he agrees some small companies do struggle to meet the shareholder spread requirements, he argues that meeting the 500-investor requirement is important to ensure a newly-floated SME has liquidity.
"Reducing the spread wouldn't necessarily fix the problem. If you have less spread, you have less liquidity. Liquidity is a huge issue for small caps."
He also questions whether there is a need for a secondary board given Australia does have a dedicated board for SMEs in the National Stock Exchange, which allows companies with as few as 50 shareholders to list with an information memorandum rather than a prospectus.
"I don't know why the ASX would create a secondary board when the NSX board is there," Buchanan says.
He says that while the NSX has only 70 companies listed and a small number of brokers trading shares, it's growth could improve the options for SMEs to float on a publicly traded market.
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